Number of Britons expecting BoE rate rise falls to two-year low

“There would need to be a sustained firming in domestic cost pressures, compared with current rates”, to push inflation back to the 2 percent target, officials said.

Minutes from December’s MPC meeting released today, show policymakers are still too concerned about low inflation to raise interest rates.

BELGRADE, Dec 10 Serbia’s central bank left its benchmark interest rate unchanged on Thursday for the second month running, with the likelihood of a U.S. Federal Reserve rate hike outweighing local factors including low inflation. We suspect that the BoE will want to see clear evidence that the headline and core inflation has bounced off the lows before they consider removing accommodation. The country’s household debt is expected to top 1,200 trillion won (1.02 trillion US dollars) within this year. At home, a pick-up in Britain’s dominant services industry in November pointed to a recovery in overall economic growth in the final months of 2015 after a dip in the third quarter, and could start to heat up inflation before long.

Last month the BOE noted that dropping prices in commodities and increased value in the pound had been damping prospect for an increase in inflation.

Since then, oil has fallen further, with Brent crude dropping below US$40 (S$56) a barrel this week.

On a trade-weighted basis, sterling has shed around 2 percent since the Bank flagged concerns about external developments weighing on the growth outlook last month.

Consumer prices fell 0.1 per cent on the year in October and annual inflation is expected to stay below the BoE 2 per cent target throughout 2016, according to central bank forecasts. The balance between pay and productivity growth remains a key aspect of the MPC’s policy assessment.

While the BOE said the government’s fiscal plan, outlined in the Autumn statement, might reduce the drag on demand next year, it said overall “fiscal consolidation will continue to weigh on growth”.

Yes, I know it will be only a small interest rate increase next Wednesday and I know it might be only a one-time event if the economy worsens in 2016 as I expect.

It’s surprising the pound weakened so much after the decision because officials barely changed their outlook, said Adam Cole, Royal Bank of Canada’s head of global foreign-exchange strategy. The rate on the three-month Treasury bill reached its highest level since February 2009, while the six-month bill rate was the highest since November 2008.

On McCafferty’s reasons for again voting for a small interest rate rise, the minutes cited a view that “the risks around domestic cost growth were to the upside”.